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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
Updated
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Securities acquired for less than market value: old regime: computation of notional loan

The amount of the notional loan initially outstanding is-

MV − DA 

Definition of MV

MV is -

  • the market value of fully paid up shares of the same class as the employment-related shares, or
  • if the employment-related shares consist of an interest in shares, the proportion of the market value of fully paid up shares of the same class as those in which the interest subsists that corresponds to the size of the interest.

Market value follows the TCGA92/S272 definition (see ERSM20400).

Definition of DA

DA is the total of any deductible amounts defined as follows:

any payment made for the employment-related shares at or before the time of the acquisition;

any amount that constitutes earnings from the employment under Chapter 1 Part 3 (earnings) in respect of the acquisition;

if the acquisition results from the exercise of a share option -

* any amount that constitutes earnings from the employment under Chapter 1 Part 3 (earnings) in respect of the receipt of the share option,
* any amount that is treated as earnings from the employment under Chapter 10 Part 3 (taxable benefits: residual liability to charge) in respect of its receipt, and
* any amount that counts as employment income of the employee under Chapter 5 Part 7 (charge on employee on exercise etc. of option by employee or another person) in respect of the exercise; and

if the acquisition results from the exercise of a share option and an amount counts as employment income of the employee under ITEPA03/S526 (Schedule 4 (approved) CSOP schemes: charge where option granted at a discount) in respect of the share option, so much of that amount as is attributable to the employment-related shares.

Reduction in notional loan

A notional loan may be reduced by the employee repaying all or part of the loan or by the employer releasing all or part of the debt. The amount of the notional loan outstanding at any subsequent time is the difference between -

  • the amount initially outstanding, and
  • the amount of any payments or further payments made for the employment-related shares after the acquisition but before that time, plus any amounts released (and charged).

The release of any obligation to pay amounts will result in a tax charge (see ERSM71050).